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Don't Sound the Death Knell for Nonrecourse Lending Yet: A Proposal for Determining a Nonrecourse Lender's Standing under the Uniform Fraudulent Conveyance Act

John E. Barnes
The Business Lawyer
Vol. 49, No. 2 (February 1994), pp. 669-688
Published by: American Bar Association
Stable URL: http://www.jstor.org/stable/40687472
Page Count: 20
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Don't Sound the Death Knell for Nonrecourse Lending Yet: A Proposal for Determining a Nonrecourse Lender's Standing under the Uniform Fraudulent Conveyance Act
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Abstract

John E. Barnes examines whether, and in what circumstances, a nonrecourse lender should have standing to challenge, as fraudulent, an insolvent debtor's conveyance of unencumbered assets. In 1992, the United States Court of Appeals for the Second Circuit strongly suggested that a nonrecourse lender may indeed be entitled in certain circumstances to enjoin a borrower's conveyance of unencumbered assets (such as cash) under the Uniform Fraudulent Conveyance Act (UFCA). Not surprisingly, the decision has engendered considerable debate within the business, financial and legal communities (and genuine alarm on the part of commercial borrowers). While the subsequent remand decision by the federal district court has assuaged, to some extent, the concerns of borrowers, the Second Circuit's decision has raised issues which will continue to be a source of controversy as nonrecourse lenders seek to maximize their recovery from insolvent debtors. Mr. Barnes, however, believes that the controversy is something of a "tempest in a teapot." In this Article, he argues that a nonrecourse lender's assertion of standing under the UFCA may be analyzed by looking to fundamental legal concepts that should be familiar (and acceptable) to borrowers and lenders alike. In reliance on these concepts, the author proposes a fourpart analytical approach for determining whether a nonrecourse lender has standing under the UFCA.

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